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Strapped Redstone tries to restructure giant loan

The mogul may have to sell more CBS and Viacom shares to make $800-million payment.

October 18, 2008|Meg James and Claudia Eller | Times Staff Writers

With pressure mounting on media mogul Sumner Redstone to dig his way out of his own credit crisis, the billionaire's privately held firm, National Amusements Inc., was scrambling Friday to renegotiate a $1.6-billion bank loan.

The company faces a deadline to repay half the amount, $800 million, by mid-December. National Amusements said Friday that a committee of its board, including Redstone's daughter, Shari Redstone, was holding discussions with the company's bankers.

If Redstone is unable to refinance his debt, some analysts say he might be forced to sell more shares of Viacom Inc. and CBS Corp., the prized media giants controlled by the family-owned holding company and media chain, something he would be loath to do.

A week ago, caught in an unforeseen credit jam, the 85-year-old entrepreneur was forced to sell at bargain-basement prices $233 million worth of nonvoting shares of CBS and Viacom. The sell-off was required to raise cash to satisfy National Amusements' loan covenants, which were violated when shares of Viacom and CBS dipped below levels stipulated in the loan agreements.

For The Record
Los Angeles Times Wednesday, October 22, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 44 words Type of Material: Correction
Sumner Redstone's debt: An article in Business on Saturday about the renegotiating of a $1.6-billion bank loan by Sumner Redstone's National Amusements Inc. described Corporate Library as "a nonprofit group that advocates for transparent corporate practices." It is a for-profit corporate governance research firm.

The situation is precarious for Redstone because much of his wealth is tied up in National Amusements, which, in addition to CBS and Viacom, controls video game maker Midway Games Inc. and the family's 1,500-screen theater chain.

"National Amusements needs to refinance or restructure $1.6 billion of gross debt soon," Pali Research analyst Richard Greenfield wrote Friday in a report. "Time is clearly of the essence."

Redstone's business problems come at a time when he also is embroiled in personal difficulties. He has been telling friends he is separating from his wife of five years, Paula Fortunato. Although the marriage has previously been the subject of speculation, people close to the couple say that this time the trouble appears to be more serious. A spokesman for Redstone declined to comment. Paula Redstone did not respond to an inquiry.

Redstone has also been feuding with daughter Shari for more than a year over a range of business issues, including succession at his media empire. The conflict spilled into the open again this week when Shari Redstone disputed a press report that National Amusements' debt problems were largely attributable to her theater expansion program.

But theater expansion was only one of the reasons National Amusements accumulated $1.6 billion in debt, according to people familiar with the situation. The company also took out loans to acquire a controlling stake in publicly traded Midway Games. And it borrowed to pay a $240-million settlement with Redstone's estranged son, Brent.

National Amusements this week blamed the company's credit woes on "recent unprecedented market volatility which led to a precipitous drop of the value of CBS and Viacom shares." The company also said it did not intend to sell any more shares of CBS and Viacom.

But not everyone on Wall Street was convinced.

Merrill Lynch media analyst Jessica Reif Cohen wrote in a report Friday that continued negotiations with bankers "suggests to us the stock sales were not sufficient to resolve covenant issues and that further action could be necessary."

Reif Cohen outlined several scenarios, including one that Redstone might have to unload more CBS and Viacom shares or even sell a significant stake in Viacom. Viacom owns Paramount Pictures and cable channels MTV, Nickelodeon and Comedy Central.

Wall Street has been frustrated by the lack of information out of National Amusements and the Redstone family regarding their financial situation. Although Redstone did not secure the National Amusement loans with CBS and Viacom shares, the covenants that govern the loan are tied to the stock value of the two companies.

CBS and Viacom last week issued revised guidance, saying their earnings would be lower than expected. The news sent CBS and Viacom shares reeling.

Viacom Class B shares fell 29 cents Friday to $18.21. Viacom shares are down 58.5% since the beginning of the year.

CBS Class B shares closed at $9.41, up 61 cents. CBS shares are down 65.5% since the beginning of the year.

Midway Games closed at $1.25 a share on Friday, down 25 cents. Less than three years ago, Midway was trading at $23.39 a share.

"The risk of further stock sales could continue to pressure [Viacom and CBS] shares," Merrill's Reif Cohen wrote.

Paul Hodgson, senior research associate for the Corporate Library, a nonprofit group that advocates for transparent corporate practices, said the financial entanglements among Redstone's various media companies have long been a source of concern to investors.

"You don't want to put yourself in a position where you are betting on shares because there could be a time when you are forced to sell those shares," Hodgson said. "It's not illegal to do what he's done, but it's a governance issue and a disclosure issue."

Bank of America is the lead bank handling the negotiations with National Amusements to restructure its debt. The company's team of advisors includes the Sherman & Sterling law firm, commercial banking giant CitiGroup and investment bank Rothschild Inc.

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meg.james@latimes.com

claudia.eller@latimes.com

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